House of Cards

You might be expecting some legal analysis from me tonight. For tonight, at least, you're not going to get it. I'm in Lima, Peru, trying to grasp the enormity of what happened today.

Like many in the poker industry, I have known about the online poker-related grand jury proceedings in the Southern District of New York for a long time, since April of last year. I had second-hand knowledge of the proceedings through someone I know who was subpoenaed by the Department of Justice. All of the questions that person was asked by the FBI pertained to payment processing and how payment processing transactions were coded post-UIGEA.

I made oblique reference to that knowledge in a December 2010 post called "What's Next for U.S. Online Poker?". At the time I wrote, "At this very moment, the Southern District of New York is investigating payment processors and how they code online poker transactions... The government is starting to catch up to what the UIGEA intended four years ago. The DOJ is getting itself up-to-speed so it can shatter the backbone of the U.S. online poker industry -- money movement."

Anyone who spent five minutes around the industry in the last few years knew that payment processing was the weakest link in the online poker operational chain. It seemed to be verging nearer and nearer to collapse, ready to take down the whole online house of cards with it.

Then PokerStarsWynn happened, followed by FullTiltStation. NJ came close to passing intra-state poker and other states were working on the same thing. All the money was lining up in favor of regulation. Typically in the U.S., as the money goes so goes the policy. It seemed like the return of regulated online poker in the U.S. was a matter of time. Who cared that PartyPoker settled with the DOJ and set a horrible precedent? We'd soon have a second boom!

Except nobody told the SDNY, and the SDNY felt that the principals of the online poker sites were nothing but a bunch of cards.

To be honest I don't think Full Tilt forgot about the SDNY. Tilt has been stockpiling cash for a long, long time for this fight. No doubt Stars and UB/AP have done the same. All three sites knew that the SDNY was asking questions about payment processing. So although this indictment has seemingly come out of left field, I doubt that PS, FTP and AP/UB were caught completely unaware. They have had to guess that something like this might be coming.

I joked with Pauly and Shamus that I envisioned a minion of Isai Scheinberg walking around the Stars corporate headquarters with the nuclear football handcuffed to his wrist. Another would break the emergency glass and start distributing the contingency plan -- prepared for this very eventuality -- to all employees.

Yet it may not matter. The case laid out in the indictment and the complaint is as damning as it is accepted fact to anyone who's been involved in any facet of the online poker industry (player side or industry side) in the last five years. Payment processing was increasingly becoming dicey. The way payments were processed was, from a certain viewpoint, fraudulent and illegal under U.S. law. It has little to do with whether or not online poker constitutes "unlawful internet gambling" under the UIGEA. The specter of the UIGEA was enough to cause banks to decline gambling-related payment processing transactions, which in turn forced the online poker sites to become more "creative" in how those transactions were moved through the system.

In business, "creative" is often a euphemism for "not entirely legal." Deliberately mis-coding a transaction is against U.S. law. After five years the government finally huffed and puffed and blew the payment processing and online poker houses down.

Now I sit in a loft in Lima, Peru with three colleagues and friends in the poker industry. We've spent the last two days covering a poker tournament that has instantly become a footnote to the biggest poker story in the last five years. Ocean's Twelve is on the television. It's the scene where each of the co-conspirators is arrested by Italian police and thrown in jail.

It seems a fitting end to one of the most trying days of my poker career.